The Price is Right: MOFCOM approves Glencore/Xstrata

Glencore and Xstrata have finally been given the go-ahead to complete their merger after receiving clearance from China’s Ministry of Commerce (MOFCOM) on 16 April 2013.

Following a review process that took approximately 14 months, MOFCOM approved the merger subject to certain requirements, including that the merged Glencore/Xstrata must sell the Peruvian Las Bambas copper mine (currently owned by Xstrata) by September 2014. Lest it be concerned about not recovering its investment in that mine, the sale of Las Bambas is subject to a minimum price. If Glencore cannot sell Las Bambas at the higher of either a fair market price (as established by two investment banks), or total costs incurred, Glencore/Xstrata will be required to sell an alternative copper mining asset.

MOFCOM also imposed a few continuing supply and pricing requirements to ensure competitive supply into China. For a period of eight years, commencing 1 January 2013, Glencore/Xstrata must:

continue to offer to supply Chinese customers approximately 900,000 metric tonnes of copper concentrate annually under long-term contracts, with the price of this supply being referenced to certain benchmark pricing mechanisms agreed with MOFCOM; and

continue to supply Chinese customers with zinc concentrate and lead concentrate at “fair and reasonable” rates.

MOFCOM’s approval was the last of a long line of regulatory hurdles for the Glencore/Xstrata merger. The EC signed off on the deal in November 2012, subject to requirements that Glencore end its relationship with zinc producer Nyrstar. South Africa’s Competition Tribunal followed with its approval in January 2013, conditional upon limits on the number of job cuts allowed in South Africa to reduce the impact of the deal upon the nation’s mining sector.

Down-under we were months ahead of the pack, receiving informal clearance from the ACCC in July 2012. Unlike its overseas counterparts, the ACCC did not impose any specific conditions on the parties, determining that the merger was not likely to result in a substantial lessening of competition in Australian markets and that there was no likelihood of anti-competitive effects arising from the vertical integration of Xstrata’s mining and production activities with Glencore’s extensive third-party trading activities.

With the regulatory checklist now officially ticked-off, it’s time for the parties to seal the deal. According to news reports, the parties expect to close the transaction by the beginning of May. Mission complete!